by Victoria Shreeves
The Central London office market has proved remarkably resilient in the aftermath of the referendum vote. After initial declines during Q2 and Q3 2016, both occupier and investment demand have returned to either average or above average levels by Q1 2017
The healthy levels of leasing activity seen in Central London at the end of 2016 continued into the first quarter. Take-up totalled 3.1 m sq ft, in line with the long-term average, while active demand remained comfortably above average levels at 8.6 m sq ft, indicating a good rate of replenishment.
Supply rose for the fifth consecutive quarter, albeit at a far slower rate than over the preceding 12 months. Total availability is now 16.0 m sq ft, representing a vacancy rate of 7.1%. The relative lack of speculative pipeline space due for delivery in the next two years is likely to slow, if not reverse, this upward trend.
In the next nine months, 2.4 million sq ft of speculative office development will complete. By way of comparison, in the nine months to Q1 2017, take-up for new and refurbished space totalled 3.7 million sq ft.
“The theme emerging from the first quarter of 2017 has been ‘business as usual’ across Central London. Investment stock remains in high demand, occupier take-up is consistent with long-term average levels and supply is beginning to fall. The Central London market is in a good position to deal with the challenges this year may present.”
Investment turnover rose to £4.7bn, its highest level quarterly for more than 12 months. Overseas investors accounted for 79% of purchases, more than three-quarters of which were from the Far East. Prime yields remained stable in both the City and West End markets at 4.25% and 3.5% respectively.
Brexit is receding as a threat to the outlook, and with employment levels currently at a record high, the pre-referendum trends in the London office market are resurfacing. As an issue shaping occupier demand, leaving the EU will be gradually overshadowed in the next two years by the rise of Digital Ubiquity.
